7. Mortgage Notes Payable and Line of Credit

The Company’s mortgage notes payable and the Company’s line of credit (the “Line of Credit”) as of December 31, 2011 and December 31, 2010 are summarized below:

Mortgage Notes Payable

As of December 31, 2011, the Company had 21 fixed-rate mortgage notes payable, collateralized by a total of 59 properties. The parent company has limited recourse liabilities that could result from any one or more of the following circumstances: a borrower voluntarily filing for bankruptcy, improper conveyance of a property, fraud or material misrepresentation, misapplication or misappropriation of rents, security deposits, insurance proceeds or condemnation proceeds, or physical waste or damage to the property resulting from a borrower’s gross negligence or willful misconduct. The Company will also indemnify lenders against claims resulting from the presence of hazardous substances or activity involving hazardous substances in violation of environmental laws on a property. The weighted-average interest rate on the mortgage notes payable as of December 31, 2011 was 5.70%.

The Company had $45,233 of balloon principal payments maturing under one of its long-term mortgages in 2011; however, the mortgage has two annual extension options through 2013, and the Company exercised one of these options on September 30, 2011. In connection with the exercise of the option, the interest rate reset from 4.58% to 4.76% through September 30, 2012. At the time of notification of the extension, the Company remitted a fee of 0.25% of the outstanding principal balance, or approximately $113, which is recorded as a deferred financing cost in the Company’s consolidated balance sheet. The Company also remitted a certification to the lender that its aggregate debt service coverage ratio is not less than 1.2, thus the Company was in compliance with all covenants under the mortgage loan. The interest rate for the one additional extension period will adjust based upon the one-year swap rate at the time of extension and a fixed spread of 4.41% and the Company would be required to remit another fee of 0.25% of the current outstanding principal balance

The fair value of all fixed-rate mortgage notes payable outstanding as of December 31, 2011 was $276,246, as compared to the carrying value stated above of $286,193. The fair value is calculated based on a discounted cash flow analysis, using interest rates based on management’s estimate of market interest rates on long-term debt with comparable terms.

On June 20, 2011, we assumed approximately $11,584 of indebtedness pursuant to a long-term note payable from PNC Bank, in connection with the Company’s acquisition, on the same date, of a property located in Springfield, Missouri. The note accrues interest at a rate of 6.08% per year, and we may not repay this note prior to the last two months of the term, or we would be subject to a substantial prepayment penalty. The note matures on June 30, 2016.

On October 28, 2011, we borrowed $7,200 pursuant to a long-term note payable from The Provident Bank, which is collateralized by a security interest in our Parsippany, New Jersey property, which we acquired on the same date. The note accrues interest at a rate of 6.00% per year and we may not repay this note prior to the last two years of the term, or we would be subject to a substantial prepayment penalty. The note has a maturity date of November 1, 2021.

On November 18, 2011, we borrowed $4,352 pursuant to a long-term note payable from Liberty Bank, which is collateralized by a security interest in our Dartmouth, Massachusetts property, which we acquired on the same date. The note accrues interest at a rate of 4.50% per year and we may not repay this note prior to the last three months of the term, or we would be subject to a substantial prepayment penalty. The note has a maturity date of November 1, 2018, with a three year extension period through November 1, 2021.

On December 6, 2011, we borrowed $8,500 pursuant to a long-term note payable from Great Southern Bank, which is collateralized by a security interest in our Tulsa, Oklahoma property. The note accrues interest for the first five years at a rate of 6.00% per year, after the fifth year the rate is based on the prime rate, with a floor of 6.00%. A portion of this note, $2,000, is full recourse to the Company. We may not repay this note prior to December 6, 2015, or we would be subject to a substantial prepayment penalty. The note has a maturity date of December 6, 2019.

Scheduled principal payments of mortgage notes payable as of December 31, 2011 for each of the five succeeding fiscal years and thereafter are as follows:

Line of Credit

In December 2010, the Company procured a $50,000 Line of Credit (with Capital One, N.A. serving as a revolving lender, a letter of credit issuer and an administrative agent and Branch Banking and Trust Company serving as a revolving lender and a letter of credit issuer), which matures on December 28, 2013. The Line of Credit originally provided for a senior secured revolving credit facility of up to $50,000 with a standby letter of credit sublimit of up to $20,000. In January 2012, the Line of Credit was expanded to $75,000; see Note 11 “Subsequent Events,” for further details. Currently, ten of the Company’s properties are pledged as collateral under its Line of Credit. The interest rate per annum applicable to the Line of Credit is equal to the London Interbank Offered Rate, or LIBOR, plus an applicable margin of up to 3.00%, depending upon the Company’s leverage. The leverage ratio used in determining the applicable margin for interest on the Line of Credit is recalculated quarterly. The Company is subject to an annual maintenance fee of 0.25% per year. The Company’s ability to access this source of financing is subject to its continued ability to meet customary lending requirements, such as compliance with financial and operating covenants and its meeting certain lending limits. One such covenant requires the Company to limit distributions to its stockholders to 95% of our FFO, with acquisition-related costs required to be expensed under ASC 805 added back to FFO. In addition, the maximum amount the Company may draw under this agreement is based on a percentage of the value of properties pledged as collateral to the banks, which must meet agreed upon eligibility standards.

If and when long-term mortgages are arranged for these pledged properties, the banks will release the properties from the Line of Credit and reduce the availability under the Line of Credit by the advanced amount of the released property. Conversely, as the Company purchases new properties meeting the eligibility standards, it may pledge these new properties to obtain additional availability under this agreement. The availability under the Line of Credit will also be reduced by letters of credit used in the ordinary course of business. The Company may use the advances under the Line of Credit for both general corporate purposes and the acquisition of new investments.

At December 31, 2011, there was $18,700 outstanding under the Line of Credit at an interest rate of 3.0% and $5,550 outstanding under letters of credit at a weighted average interest rate of 2.75%. At December 31, 2011, the maximum amount the Company may draw was $35,686, leaving a remaining borrowing capacity available under the Line of Credit of $11,436. The Company was in compliance with all covenants under the Line of Credit as of December 31, 2011. The amount outstanding on the Line of Credit as of December 31, 2011 approximates fair value, because the debt is short-term.